The bonus program that is the best one for your business depends on what your reasons are for offering the bonus. If you are looking for a way to provide additional income for your sales managers in years when it is affordable, and to keep them at least interested in the overall company performance, then a year-end bonus tied to overall company results may be the right answer for you.
However, if you want to motivate and reward for results they themselves are capable of generating, giving them meaningful at-risk pay to “penalize” those who don’t deliver and exciting upside to reward those who really ring the bell, then you might want to consider tying their variable pay more directly to results they can personally control.
A more typical sales management variable pay plan would tie a fixed value incentive opportunity to achieving a sales or gross margin goal, with:
- No payout for performance before some threshold value (50% – 90% of goal depending on goal setting accuracy and company/market maturity),
- Increasing (but linear) payout between the threshold and the goal,
- Accelerated payout (more $/percentage point of goal achieved) for over-goal performance, and
- Deceleration or a cap at a very high level of performance (110% – 150% of goal, again depending on goal setting accuracy and company/market maturity).